1.2Shortcoming of Marginal costing-does not attempt to connect general overhead costs to products. Also produce misleading product costs

2.0CIMA defines ABC as:

·An approach to the costing and monitoring of activities which involves tracing resources consumption and costing final outputs. Resources are assigned to activities and activities to cost objects based on consumption estimates. The latter use cost drivers to attach activity costs to outputs.

3.0ABC is called a “ one-step cost attribution system” as costs are not apportioned between activities- the costs of each activity are related directly to products. Cost attribution is “the process of relating cost to cost centres or cost units using cost allocation or cost apportionment”

4.0ABC can help managers to control (a) product costs because it concentrates their attention on the volume of each cost driver consumed by each product and (b) overhead costs because ABC highlights the cost per unit of each cost driver.

5.0ABC is very effective in modern manufacturing firms where they have high overhead costs and in the service industry. In service industry, the units of service are often the cost drivers themselves.

6.0 The steps/stages involve in ABC are as follows:

(a) Identify all the activities which support production

(b) Collect the costs of each activity into cost pools ( Cost pools are similar to cost centresin absorption costing except that cost pools do no contained any apportioned costs)